Friday, June 27, 2008

As my career has progressed and moved through roles as a sales guy, sales manager, sales executive, and business owner, I have spent countless hours reviewing pipeline reports. Whether it was in the old days of putting everything into a hand-written pipeline sheet, through the introduction of spreadsheets, or ultimately with some of the powerful reporting and analytical tools in today’s CRM systems, it all boils down to the numbers.

The question is what numbers are most important and telling when it comes to analyzing an individual, team, or company pipeline. Size and diversity matter. However, let me make the case for a metric that I feel too often is not reviewed with the proper level of importance…Pipeline Velocity!

How often do you review the speed at which an opportunity is moving through your pipeline and advancing from one stage of the sales process to the next? I don’t think that most sales and sales management professionals appreciate the importance of deal velocity. Safe driving advocates advance the saying “speed kills”, but I would count that in sales it is a lack of deal velocity that kills.

When you review an individual, regional, or organizational sales pipeline, it is common to be lulled into a comfort zone when you have a large overall volume of potential revenue in your pipeline or a large number of deals that make up the pipeline. Both of these metrics are important, a strong pipeline needs to be substantial in dollar volume and diversified in the number of deals that make up the pipeline. However, this is also a great way to lose sight of the dynamics which are impacting your business, or individual sales reps.

Any one that has spent any time selling or managing has either used or heard the common excuses when a deal gets “stuck” in the pipeline. They range from decision makers going on vacation to budget reviews to personnel changes. All of these can be valid reasons that a buyer will delay making a decision. My goal in this article is not to analyze whether there are valid reasons for a deal’s velocity to slow down, but rather get you to think about why it is important to watch velocity and deal aging as an important metric.

Here are some of the things that pipeline velocity can tell you when a deal is moving fast through the pipeline.

The prospect has a problem that is significant and they believe that your product / solution can solve the problem.

The prospect sees a market opportunity and your product / solution will let them capture that opportunity before their competition.

Senior management of the prospect’s company is involved with the process so you are getting go, no-go, and advance decisions quickly.

Budget has been allocated to solve the problem so the prospect’s evaluation team and decision makers are funded to make the purchase.

Departments or groups within the prospect’s organization are aligned around solving the problem for which your solution is being evaluated.

Conversely, some of the warning signs that you should be fearful of if a deal slows down as it moves through the pipeline.

Your contact at the prospect’s company does not have the authority, political clout, or budget to move the purchase or agreement further in the process.

Some thing has changed about their need.

A competitor, or alternative, has entered the picture – this could be another company like yours, or it could be an internal group that believes they can offer the solution.

You are dealing with the wrong person – this can come in the form of a non-decision maker, or perhaps there is just another person that is more powerful than your contact.

Delay issues are not inherently deal breakers. In fact, they could lead to an expansion in the size of the deal. I’ve had situations where I was proposing a departmental solution that suddenly showed a compelling value proposition for a larger implementation, and the prospect slowed the deal down to turn a point solution into an enterprise solution. Even though they are not inherently bad news, when a deal loses speed and velocity, you need to take action. Good, bad, or otherwise, something is happening with the proposed solution.

For my last business we used Salesforce.com as our sales force automation (SFA) system, and after developing some reports and analytics we found some astonishing information about the importance of pipeline velocity. Our proposals for consulting services had three times greater chance of closing if we won the deal in the first 90 days versus opportunities that had sales cycles longer than 180 days. Upon further analysis, we found that the ideal sales cycle was about 45 days and there was no deterioration in average deal size (debunking the theory that smaller deals take less time to close) and there was no statistical difference between repeat clients versus new name clients (debunking the theory that existing clients would buy new engagements with a faster sales cycle).

The moral of this story is to pay attention to your pipeline velocity. If you have deals that are stuck in a certain sales stage, that is a red flag and you need to find out why. If you have deals that have been in the pipeline for a long period of time, take a hard look at the dynamics impacting the selling situation because you probably have some issues that the sales person has not identified, or is not acknowledging.

When I started my last business, we had subleased office space with Fast Company magazine. It was a cool place to be as the magazine took off and changed the way business publications were designed, written, and read. Often times, posters were made of the magazine covers and we “liberated” one to hang in our office. The cover was stylized text of a Hunter S. Thompson quote and read, “Faster, Faster, until the thrill of speed overcomes the fear of death.”

Make sure your pipeline is energized with the thrill of speed via deal velocity; the alternative is much less attractive.